Twitter Stock Is ‘in a Code Red Situation,’ According to Trading Experts

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Shares of Twitter were down 5.3% in pre-market trading on July 11, following Elon Musk’s termination of the $44 billion deal late Friday, July 8.

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In a Securities and Exchange Commission (SEC) filing, Musk’s lawyers wrote this was “because Twitter is in material breach of multiple provisions of that agreement, appears to have made false and misleading representations upon which Mr. Musk relied when entering into the Merger Agreement, and is likely to suffer a Company Material Adverse effect.”

“This morning Twitter begins Day 1 as a public company post Musk formally terminating the acquisition on Friday night,” Wedbush Securities analyst Dan Ives wrote in a July 11 note. “For Twitter, this fiasco is a nightmare scenario and will result in an Everest-like uphill climb for Parag & Co. to navigate the myriad of challenges ahead around employee turnover/morale, advertising headwinds, investor credibility around the fake account/bot issues, and host of other issues abound.”

Ives added that today, Twitter’s stock will start to trade on a standalone basis “with a valuation range that we view as $25-$30 being fair value based on its peer group and growth profile: and deems the situation a “code red” for the stock.

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“In a nutshell, this is a ‘code red’ situation for Twitter and its Board as now the company will go head-to-head against Musk in a Game of Thrones court battle to recoup the deal and/or the breakup fee of $1 billion at a minimum. We see no other bidders emerging at this time while legal proceedings play out in the courts,” Ives wrote in the note sent to GOBankingRates.

Wedbush maintained its Neutral rating and a $30 price target.

Bret Taylor, Twitter Chairman, tweeted on July 8 that “the Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement. We are confident we will prevail in the Delaware Court of Chancery.”

To which, the richest man on the planet replied in typical Musk-fashion, with Twitter memes.

Bloomberg reported July 10 that Twitter hired merger law firm Wachtell, Lipton, Rosen & Katz to sue Musk and plans to file a suit early this week.

Ives added in the note that “Musk does not come out of this looking like roses, it’s a black eye moment for him the way this circus show was handled since April and many investors will continue to view this as a buyers remorse situation with a market dramatically changing since April and the fake account issue the scapegoat which has turned into a life of its own.”

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He also said in a July 8 note that while this will provide some relief for Tesla, “as this situation was an overhang on the stock, but the Street is wary of the looming court battle ahead between Musk/Twitter Board.”

Musk pumped the brakes on the acquisition several weeks ago saying that spam and bot accounts comprised at least 20% of users on the social media platform — a figure much higher than the “less than 5%” Twitter had disclosed in filings, as GOBankingRates previously reported.

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In June, in compliance with Elon Musk’s most recent demands, Twitter said it would reportedly provide him access to the social media platform’s full set of internal data. This move followed the richest man on the planet saying the lack of said information represented a “material breach” of the requisite conditions concerning his deal to buy Twitter, per GOBankingRates.

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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